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FE D E R A L R E S E R V E B A N K O F D A L L A S Station K, Dallas, Texas 7 5 2 2 2 C i r c u l a r No. 84-47 April 4, 1984 TO: All member banks and others concerned in the Eleventh Federal Reserve D i s t r i c t ATTENTION: Chief Executive Offi cer SUBJECT: Proposed amendments to Regulation G, T, concerning Securities Credit Transactions SUMMARY: The Board of Governors of the Federal Reserve System is proposing to amend i t s Regulation G, T, and U to au to m ati cal ly permit brokers and d eal er s to lend on ov er -th e- co u nt er s e c u r i t i e s designated f o r t ra di ng in the National Market System portion of NASDAQ. I n t e r e s t e d p a r t i e s are i n v i te d to submit comments to William W. Wiles, S ec re ta ry , Board of Governors of the Federal Reserve System, 20th S t r e e t and Co ns ti tu ti on Avenue, N.W., Washington, D.C., 20551. Comments should r e f e r to Docket No. R-0512 and must be received by April 27, 1S84. ATTACHMENTS: Board's press r e le a s e and material as submitted fo r pu bl ica ti o n in the Federal Register MORE INFORMATION Legal Department, Extension 6171 ADDITIONAL COPIES: Public A f fa ir s Department, Extension 6289 and U This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FEDERAL RESERVE press release For immediate re le a s e March 12, 1984 The Federal Reserve Board today published for publ ic comment a proposal t h a t would automatically permit brokers and de al er s t o lend on ov er -t h e- co un te r s e c u r i t i e s designated for tr a d i n g in the National Market System po rt io n of NASDAQ ments. \j in conformance with the Board’s margin r e q u i re The proposal would amend the Board's margin re g u l at i o n s (Regulations 6, T and U). Comment is requested by April 27. The National Market System l i s t of s e c u r i t i e s was developed in response to a l e g i s l a t i v e mandate to the S e c u r i t i e s and Exchange Commission (SEC) t o f a c i l i t a t e and r e g u l a te development of a market system linking s e c u r i t i e s markets through uniform r e p o rt i n g systems. Unlike other s e c u r i t i e s tr aded in the over- th e - c o u n t e r market, “l a s t sale" rep ortin g i s required of National Market System securities. Stocks are included in the National Market System under two se t s of c r i t e r i a developed by the NASD with the approval of the SEC. C u rr en tl y , t h e r e are nearly 800 stocks traded in the National Market System and 1,100 additional i ss u es are repo rte dly e l i g i b l e fo r i ncl usi on under the present c r i t e r i a . I t i s expected t h a t s e c u r i t i e s added to or removed from th e National Market System wi ll be published by the SEC in the Federal R e g i s t e r . Under the proposal, the s e c u r i t i e s will au tom atically become "margin s e c u r i t i e s " upon publication. The Board expects to continue to publish i t s L i s t of OTC Margin Stocks t o des ignate other ov er -th e- co u nt er s e c u r i t i e s t h a t are sub je ct to margin. The Board's no ti ce i s at ta c h e d . - 0 - Attachment 1/ National Association of S e c u r i t i e s Dealers Automated Quotation. FEDERAL RESERVE SYSTEM Regulations G, T and U [12 CFR 207, 220 and 221] [Docket No. R-0512] SECURITIES CREDIT TRANSACTIONS Amendment to d e f i n i t i o n of "margin se cu ri t y " to automatically include National Market System s e c u r i t i e s AGENCY: Board of Governors of the Federal Reserve System. ACTION: Proposed amendments. SUMMARY: The Board proposes to amend the d e f i n i t i o n of "margin se cu ri ty " in Regulation T and the d e f i n i t i o n s of "margin stock" in Regulations G and U to give automatic marginabi1i t y to any ov er -th e- cou nt er s e c u r i t y designated by the S e c u r i t i e s and Exchange Commission as q u a l i f i e d for tr ad in g in the National Market System. DATE: Comments should be received by April 27, 1984. ADDRESS: Comments, which should r e f e r to Docket No. R-0512, may be mailed to William Wiles, S ecr et ary , Board of Governors of the Federal Reserve System, 20th S tr e et and Cons ti tu ti on Avenue, N.W., Washington, D.C. 20551, or delivered to Room B-2223 between 8:45 a.m. and 5:15 p.m. Comments received may be inspected at Room B-1122 between 8:45 a.m. and 5:15 p.m., except as provided in se ct io n 261.6(a) of the Board's Rules Regarding A v a i l a b i l i t y of Information [12 CFR § 261. 6 ( a ) ] . FOR FURTHER INFORMATION CONTACT: Robert S. P l o t k i n , A s si st an t D i r e c t o r, Laura Homer, S e c u r i t i e s Credit O f f i c e r , or Jamie Lenoci, Financial Analyst, Division of Banking Supervision and Regulation (202) 452-2781. t i o n on the economic a n a l y s is c on ta ct : For informa Carolyn DuBose Davis, Economist, Division of Research and S t a t i s t i c s (202) 452-3633. - 2 - SUPPLEMENTARY INFORMATION: The National Association of S e c u r i t i e s Dealers (NASD) has asked the Board to give automatic m a r g i n a b il i ty to those s e c u r i t i e s on i t s "National L i s t . " The NASD regards over 2500 s e c u r i t i e s tr ad i n g in i t s automated quotation system (NASDAQ) including 700 stocks in the National Market System, as i t s National L i s t . Information on p ri ces and volume of tr ad i n g f o r s e c u r i t i e s on th e National List i s published in about 100 U.S. and foreign newspapers. The m ajority of stocks in the National L is t are already on the Board's Lis t of OTC Margin Stocks or are p o te nt ia l candidates for the L i s t . The Board's List is published t h r e e times a year but because of time lags in adding stocks to t he L i s t , t he NASD bel ieves i t i s a t a competitive disadvantage with exchanges where s e c u r i t i e s are marginable as soon as a r e g i s t r a t i o n f o r l i s t i n g becomes effective. S t a f f an a l y s i s i n d i c a t e s t h a t s e c u r i t i e s t r ad in g in the National Market System with " l a s t sale" r epo rti ng could be made au tom atically marginable (upon pu bl ic at io n in the Federal Register of the ad di ti ons to and d e l e t i o n s from t h a t category) since l i q u i d i t y and other f a c t o r s compare favorably with s e c u r i t i e s traded on major exchanges. The other National List s e c u r i t i e s do not have " l a s t sale" rep ortin g and, as a group, e x h i b i t l e s s l i q u i d i t y . I t i s expected t h a t the S e c u r i t i e s and Exchange Commission will publish the s e c u r i t i e s added to or removed from the National Market System des ignation in th e Federal R e g i s t e r ; upon t h i s f i l i n g the s e c u r i t i e s will be aut omatically "margin s e c u r i t i e s " . INITIAL REGULATORY FLEXIBILITY ANALYSIS: The Board's proposal t o amend i t s margin r e gu la ti o n s t o include s e c u r i t i e s t h a t are designated as q u a l i f i e d for tr ad in g in t he National Market System by th e S e c u r i t i e s and Exchange Commission i s not expected to have any adverse impact on a s u b s t a n t i a l number of small b u si ne ss e s. Analysis - 3 - in d i c a t e s t h a t approximately 95 percent of a l l p resent National Market System s e c u r i t i e s are c u r r e n t l y on the Board's L is t of OTC Margin Stocks. Under the proposal, the p o te nt ia l candidates would be marginable a t a brokerage firm as soon as the SEC f i l e s the names with the Federal Reg ist er f o r p u b li c a t i o n and could be used immediately as c o l l a t e r a l in a margin account. However, because of the m a r g i n a b il it y of these s e c u r i t i e s , c e r t a i n c o n s t r a i n t s on loans by banks and others would be imposed a t the time of the Federal Register filing. L is t of Subjects in 12 CFR Part 207 Banks, Banking, C r e d i t , Federal Reserve System, Margin, Margin requirements, Reporting and recordkeeping requirements, S e c u r i t i e s . L ist of Subjects in 12 CFR Part 220 Banks, Banking, Brokers, C r e d i t , Federal Reserve System, Margin, Margin requirements, Investments, Reporting and recordkeeping requirements, Securities. List of Subjects in 12 CFR Part 221 Banks, Banking, C r e d i t , Federal Reserve System, Margin, Margin requirements, Reporting and recordkeeping requirements, S e c u r i t i e s . Accordingly, pursuant to §§ 7 and 23 of the S e c u r i t i e s Exchange Act of 1934, as amended (15 U.S.C. §§ 78g and 78w), the Board proposes to amend Regulation G, T and U (12 CFR 207, 220 and 221 r e s p e c t i v e l y ) as f o l 1ows: PART 207 — SECURITIES CREDIT BY PERSONS OTHER THAN BANKS, BROKERS, OR DEALERS ★ ★ ★ * ★ Section 207.2 — D ef in it io n s ★ ( i) "Margin stock" means: * ★ (1) any equity s e c u r i t y r e g i s t e r e d or having u n l i s t e d tr a d in g p r i v i l e g e s on a national s e c u r i t i e s exchange; 4 - - (2) any OTC margin stock; (3) any OTC s e c u r i t y designated by the SEC as q u a l i f i e d fo r trading in the National Market System. (4) any debt s e c u r i t y c o n ve r ti b le in to a margin stock or c a r r y ing awarrant or r i g h t to subscribe to or purchase a margin stock; (5) any warrant or r i g h t to subscribe to or purchase a margin (6) any s e c u r i t y issued by an investment company r e g i s t e r e d under stock; or section 8 of th e Investment Company Act of 1940 (15 U.S.C. 80a-8), other than: (1) a company licensed under the Small Business Investment Company Act of 1958, as amended (15 U.S.C. 661); or (ii) a company which has at l e a s t 95 percent of i t s a s s e t s c o n t i n uously invested in exempted s e c u r i t i e s (as defined in 15 U.S.C. 78c(12)). PART 220 — CREDIT BY BROKERS AND DEALERS ★ ★ ★ ★ ★ Section 220.2 - - De fi ni ti o n s ★ ★ ★ (o) "Margin s e cu ri ty " means (1) any r e g i s t e r e d s e c u r i t y ; (2) any OTC margin stock; (3) any OTC margin bond; (4) any OTC s e c u r i t y designated by t he SEC as q u a l i f i e d f o r tr ad in g in t h e National Market System; or (5) any s e c u r i t y issued by e i t h e r anopen-end investment or unit investment t r u s t which i s r e g i s t e r e d under se ct io n Company Act of 1940 (15 U.S.C. 80a-8). company 8 of the Investment - 5 - PART 221 — CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCKS Section 221.2 - - De fi ni ti o ns * (h) ★ "Margin stock" means: (1) any equity s e c u r i t y r e g i s t e r e d or having u n l i s t e d tr a d in g p r i v il e g e s on a national s e c u r i t i e s exchange; (2) any OTC margin stock; (3) any OTC s e c u r i t y designated by the SEC as q u a l i f i e d fo r trading in th e National Market System. (4) any debt s e c u r i t y co n v e r ti b le in to a margin stock or c a r r y ing a warrant or r i g h t t o subscribe to or purchase a margin stoc k; (5) any warrant or r i g h t to subscribe to or purchase a margin (6) any s e c u r i t y issued by an investment company r e g i s t e r e d under stock; or sectio n 8 of th e Investment Company Act of 1940 (15 U.S.C. 80a-8), other than: (i) a company licen se d under the Small Business Investment Company Act of 1958, as amended (15 U.S.C. 661); or (ii) a company which has at l e a s t 95 percent of i t s a s s e t s c o n t i n uously invested in exempted s e c u r i t i e s (as defined in 15 U.S.C. 7 8 c ( l 2 ) ) . By or der of th e Board of Governors of the Federal Reserve System, March 7, 1984. (signed) William W. Wiles William W. Wiles Secretary of the Board
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